Flipkart’s New Business Model: Will it Succeed?

Posted in Finance Articles, Total Reads: 9151
, Published on 23 January 2014

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Internet Shopping.

Which company flashes in your mind first?????

Flipkart, Amazon, eBay…………..etc. etc. etc………..

Well, let me talk about the home-grown, Indian, e-commerce site ‘Flipkart’, also considered as the Amazon of India.

The e-Commerce player recently announced the launch of Flipkart Marketplace, wherein it will provide a platform for buyers and sellers to deal. It will no longer have an inventory of its own, rather whereas the shipping and delivery of the products will be done by Flipkart itself. The model will be similar to big players like eBay, Amazon, etc. It will also provide the facility to compare prices and select the best from various sellers. To start with, it has just 50 sellers on-board. This means that it is going to change its business model completely.

According to the CEO, it will also provide platform for small retailers on the same platform which was, till now, available for large players only. Before this transition, the company was losing Rs. 50 crore a month. It has reduced the staff and outsourced the logistic functions. It has already shut down its Delhi office and its digital music download business.

Now the question raised is that is it good for a company, which has not yet achieved break-even, to change its business model entirely? A company started in 2007, operating in negative cash flows (i.e., still not profitable) has decided to compete with billion dollar companies like eBay and Amazon! Also new players in the industry such as Tradus.com, Shopclues.com, Snapdeal.com, etc. can also prove nails in the coffin of Flipkart.

Flipkart had already raised $200 million from its investors, making it the single largest round of funding in the Indian ecommerce market. And on 10th October’13, it raised further $160 million from mostly new investors, taking the total in the fifth round to $360 million. With this, Flipkart is now valued at over $1.6 billion. At present, they have about 500 sellers on their platform and are targeting a figure to of at least 10,000 sellers by the end of FY2015. Flipkart has set a target of touching $1 billion in revenue by 2015. Presently it is only the half way mark consuming around $381 million of risk capital. It is raising money in order to cope up with the growth in revenue. It is very evident that the company will need more money to grow and meet its target.

The company which created a revolution in e-Commerce business by introducing the facility of ‘Cash-on-delivery’ system is on the verge of major war with the established players. Well. The company is quite confident to be successful mainly because of its brand awareness and good reputation.

What if Flipkart fails? What if eBay and Amazon make Flipkart kneel in front of them?

What happens if customers default on COD? Will the company pay for the loss of other vendors?

When will the company become profitable?

Well, the answers to these questions will be answered automatically in due course of time.